The specter of Medicaid estate recovery causes fear for many who are considering the consequences of gifting to qualify for Medical Assistance. However, the speakers at the recent National Academy of Elder Law Attorneys’ (NAELA) 2012 Annual Conference in Seattle, Washington reminded the attendees that through proper Elder Law planning, assets can be protected from nursing home spending and estate recovery.
One of the speakers began by talking about the authorization for estate recovery. Federal law requires that states have a recovery plan in place. The constitutionality of the law was attacked as an infringement on state’s rights, but in a case brought by West Virginia the U.S. Court of Appeals for the Fourth Circuit ruled that the requirement is not coercive nor a violation of the Tenth Amendment. As a result, all states, including Pennsylvania, have an estate recovery program.
The biggest issue surrounding Medicaid estate recovery is federal preemption. Recovery at the state level can’t be more expansive than federal law allows. Each state defines the term “estate” differently when considering what is eligible for recovery.
How does estate recovery work? The general rule is that no lien may be imposed during the Medicaid recipient’s lifetime. There is an exception if the Medicaid payment was incorrectly made and there is a judgment from the court or if there is real property and no intent to return home. In Arkansas Dept. of Health & Human Services v. Ahlborn (547 U.S. 268 (2008)), an individual received a settlement in a personal injury case, and Medicaid asserted a lien against the settlement. The Supreme Court held that federal law prohibits recovery during the recipient’s life, so the state cannot touch the settlement unless it is reimbursement for medical costs associated with the injury.
What can and can’t be recovered depends on what each individual state permits. Federal law allows states to expand the definition of estate beyond the probate estate to real or personal property or other assets the recipient had title to or an interest in at the time of death. Fewer than half the states have adopted the expanded definition of estate.
The Pennsylvania Department of Public Welfare (PA DPW) only seeks re-payment from a decedent’s probate estate. Therefore, assets with joint ownership or beneficiary designations will be able to avoid estate recovery if the existence of those assets, if known, were properly disclosed to DPW upon application for Medicaid.
What About Trusts?
Whether the Pennsylvania DPW can recover from a trust depends, in part, on whether the trust is revocable or irrevocable. In Pennsylvania, a revocable trust cannot be recovered against, but it is likely the assets in the trust would have been spent on the decedent’s care during lifetime.
In general, the state can’t recover against a properly drafted irrevocable trust, but there have been exceptions. In one case, a discretionary trust was invaded because it did not contain a spendthrift provision, so it was available to all general creditors. As discussed in other articles, Medicaid planning is asset protection planning and we depend on the state’s underlying asset protection laws for direction. As long as the irrevocable trust is properly drafted under Pennsylvania state law regarding asset protection, the assets should be safe.
Check out another recent article I have written on a great option when using the Medicaid Asset Protection Trust.
Although the Pennsylvania DPW can’t recover the principal amount of gifts to an irrevocable income-only trust, it can recover income from an income-only trust, including undistributed income. BE CAREFUL!! If the trust includes a general power of appointment, then the remainder of an irrevocable trust would probably be recoverable. However, a limited power of appointment would not make the trust recoverable because the grantor would not be able to give the trust back to him- or herself or to his or her estate.
How About IRA’s?
Whether the state can recover from an individual retirement account (IRA) is an open question. While the face of the statute would imply that Medicaid can make recovery from an IRA, the speaker said he had not located any cases in which a state has tried. He believes there is a strong argument that recovery from an IRA would conflict with federal tax law. That being said, IRA’s with beneficiaries designated are non-probate assets and therefore are not subject to estate recovery on Pennsylvania.
The most important thing for you to remember is that “estate recovery” does apply, but only in a very small number of cases. You, your family and loved ones should not be paralyzed by fear or by a possible bad outcome. Medicaid planning is alive and well even with estate recovery. Proper planning done well in advance will pass the test.
To review your case in detail, please call Douglas L. Kaune, Esquire at 610-933-8069. Please also sign up to receive our most recent free reports by clicking here.
Read my other article on estate recovery in PA by clicking here.
As previously discussed, Pennsylvania has an estate recovery program that allows the Department of Public Welfare (DPW) to seek repayment from the probate estates of decedents who had been cared for through medical assistance (also referred to as Medicaid). Because Pennsylvania only has the ability to reach assets in the decedent’s probate estate, there are naturally assets that Pennsylvania does not have the ability to recover.
To understand those assets that the PA DPW cannot reach at the death of a Medicaid recipient, let’s first look at those that the estate recovery can require repayment from. Probate assets are those that are in the decedent’s name alone and which are not owned jointly with another person or designated to transfer by beneficiary designation. Examples of probate assets upon someone’s death are: 1. a real estate interest owned in the decedent’s single name, 2. a bank account owned in the decedent’s single name, 3. a stock account owned in the decedent’s single name; and 4. a vehicle owned in the decedent’s single name. Therefore, to avoid estate recovery, you should look to transform any assets owned by the Medicaid recipient into non-probate assets so that they will transfer outside of the Department of Public Welfare estate recovery upon the death of the Medicaid recipient.
Non-Probate Assets which are not subject to estate recovery include property owned jointly by the decedent and another person. For example, real estate owned jointly by a former Medicaid recipient with his or her spouse, friend, child or sibling cannot be recovered. Life insurance proceeds paid directly to a designated named beneficiary are outside of the recovery process. Assets of the decedent which had been placed in trust during his or her lifetime are free from recovery. Additionally, PA estate recovery cannot go after irrevocable funeral reserves and certain trusts for disabled beneficiaries.
The process of converting assets to non-probate status is an important planning tool, but is frequently overlooked. Take this prototypical case pattern: Husband and wife own significant assets. Wife enters a nursing home. Husband’s and wife’s assets are spent down to required levels and Wife qualifies for nursing home. Husband retains his allowable spousal share of the assets such as a primary residence worth $400,000, cash in the amount of $110,000 and an IRA of $400,000. That is over $900,000 in assets!! Husband does not seek proper planning advice and keeps his old will and does not change beneficiaries. Husband lives for 5 more years while Medicaid pays for wife’s care. When husband dies all assets transfer to wife who is in the nursing home. The inheritance causes wife to go off of Medicaid and she begins privately paying for her care. Wife does not seek proper planning advice and she leaves all assets in her name alone so that upon her death all assets remaining are probate in nature. She lives for 3 more years after husband’s death having a probate estate of $550,000. As a result PA DPW will have a claim against wife’s probate estate in the amount equal to the 5 years of care Medicaid had paid for during husband’s lifetime. This estate recovery claim would likely be between $350,000 to $450,000 depending on the monthly care cost paid by the Medicaid.
This horribly negative result could have been avoided or softened if; 1. husband had prepared his estate plan to either disinherit his wife or create a special needs trust for her benefit; or, 2. even if husband failed to properly plan, wife or her power of attorney (agent) could have modified the ownership of assets so that they transferred non-probate at her death.
This fact pattern serves to illustrate only one of the many cases where proper planning could thwart the PA estate recovery program. These are legal and powerful planning options that can serve to protect hundreds of thousands of dollars.
To review this additional article on the Estate Recovery Program click here.
To review this Unruh, Turner, Burke & Frees, P.C. article on the definition of probate and non-probate assets click here.
Please contact Douglas L. Kaune at 610 933 8069 to review your case in greater detail.
Pennsylvania is required by the federal government to operate an estate recovery program. Generally speaking, an estate recovery program is intended to allow a state to seek payment from the estates of decedents who were receiving Medicaid or Medical Assistance during their lifetimes. The PA estate recovery program was officially set out in Act 49 of 1994, Section 1412, 62 Pa. C.S. §1412. In Pennsylvania, the Department of Public Welfare (DPW) is the government arm that is empowered to seek repayment of medical assistance payments from a decedent’s probate estate.
Although Medicaid recipients do not have to be given notice of the estate recovery program, the Department of Public Welfare has an informational brochure about the estate recovery program which is provided to Medicaid recipients and their families when benefits are initiated. It is also expected, but not required that each DPW caseworker will discuss the estate recovery program with the recipients and their families.
It is sometimes difficult to focus on all of the related issues during the Medicaid application process. It is understandable that the applicants and their families are not necessarily paying close attention to the details of estate recovery while their primary concern is for the nursing care placement and overall well being of their family member. That being said, proper titling of assets and strategies relating to beneficiary designations can make tens of thousands of dollars of difference to the Medicaid recipient’s family after his or her death. We encourage you to pay attention to the caseworker during the application process and make sure that you familiarize yourself with estate recovery and the nuances that can be used to your advantage. Although, you might not think it is important, the estate recovery issues could impact your or your loved one’s estate in cases like those mentioned below.
There are some exceptions to the estate reach of the estate recovery program. Medical assistance paid on behalf of a recipient before he or she reached age 55 is not subject to repayment. The program also authorizes recovery only where Medicaid paid for specific types of services such as nursing home care and home care such as that provided through the Waiver Program. Other medical care and hospital care may be exempt from recovery.
Pennsylvania actually has a shorter estate recovery reach than many other states. Pennsylvania only permits recovery of probate assets. Probate assets are those in the decedent’s name alone and which do not pass to a joint owner or a designated beneficiary. Other states are permitted by their laws to seek recovery from jointly owned property and assets passing through beneficiary designation at death. Probate assets are easily identifies because it will be necessary for an executor, administrator of appointed estate representative to be appointed in order for the probate asset to be accessed.
It is important to note that assets such as IRA’s, 401k’s, Annuities and life insurance payable to the decedent’s estate are subject to estate recovery. Make sure to have the beneficiary designations properly constructed to avoid the estate recovery when possible.
Although there might not be an expectation of significant assets in the name of a Medicaid recipient at the time of his or her death, it is possible that there could be more than anticipated. As a matter of qualifying for Medical Assistance, he or she likely had little to nothing in the way of assets. That being said, there are a number of scenarios whereby a Medicaid recipient could own assets at death.
Some of those common scenarios are:
1. The decedent owned a primary residence that was not sold because the owner/Medicaid recipient stated a possible intention to return. Therefor the real estate was still there at the recipient’s death and in the decedent’s name.
2. The decedent was married at the time he or she qualified for Medicaid. His or her spouse died before the medicaid recipient and did not properly plan his or her estate and thereby left assets to the spouse who was still on Medicaid and living in a nursing home. It is important to note that this scenario can be avoided through proper planning, but is often overlooked.
3. The decedent was the named beneficiary of a deceased family member or friend and certain assets were paid to him or her after he or she had been receiving Medical Assistance.
4. The decedent was receiving Medicaid during his or her lifetime. Subsequent to qualifying for Medicaid, he or she successfully won a lawsuit that paid out a large settlement.
These are only some of the more common scenarios where assets are owned by the decedent which could potentially be available for estate recovery. It is important in these cases to enter into proper planning to turn the assets into non-probate status so that any balance at death can escape estate recovery.
If you or a loved one are facing nursing care needs and you have questions about the estate recovery program and how best to navigate to process, please contact Douglas L. Kaune at 610 933 8069 or firstname.lastname@example.org to discuss your case more fully. Unruh, Turner, Burke & Frees, P.C. – Offices in Phoenixville, Malvern and West Chester.